Glencore fightback over debt fears lifts shares

JOHANNESBURG/LONDON (Reuters) - Glencore said on Tuesday it was strong enough to ride out current volatility in commodity markets, helping to lift the mining group’s shares by a fifth.

The logo of Glencore is pictured in front of the company's headquarters in the Swiss town of Baar, November 13, 2012. REUTERS/Michael Buholzer/Files

Glencore’s stock rebounded after a fall of 30 percent to a record low on Monday in response to uncertainty over its ability to cope with a prolonged fall in global metal prices.

Its shares closed up 16.9 percent at 84.91 pence in London.

The Swiss-based company said its business remained operationally and financially robust and it was confident in the medium and long-term fundamentals of its commodities, which include copper and coal.

“We have positive cash flow, good liquidity and absolutely no solvency issues,” a company spokesman said in a statement.

“Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding.”

Lenders said on Tuesday they remain supportive of the embattled commodities trader and mining company, which has around $13 billion of liquidity available and can finance its debt maturities for two years.

“We are watching quite carefully, but without the concern or type of hysteria you are seeing in equities,” a head of loan syndicate at a bank said. “If the company is left to resolve its own issues, we are quite confident that they will do so.”

The shares had plunged on Monday wiping about 3.5 billion pounds from Glencore’s market value on fears the group was not doing enough to cut its $30 billion debt pile as commodity prices tumbled.

Chief Executive Ivan Glasenberg had to bow to shareholder pressure this month by agreeing to cut Glencore’s debts and protect its credit rating after the prices of its main products fell.

Glencore plans to suspend dividends, sell assets, cut copper production and raise cash, among other measures, to cut its net debt by a third by the end of 2016. The group has already raised $2.5 billion through a share placement.

On Tuesday, Chile’s second-biggest copper mine Collahuasi, which is owned by Glencore and Anglo American, announced plans to cut output by 300,000 tonnes per year to protect against sinking copper prices.

Glencore’s $10 billion share listing in London in 2011 turned its managers into billionaires. Now there is speculation it might make sense for Glencore management to take the company private.

Analysts at Citi have said Glencore should consider going private via a management buyout. Such a move would make it easier to restructure while metals prices are slumping and could allow various assets to be spun off.

“In the event the equity market continues to express its unwillingness to value the business fairly, the company management should take the company private, whereby restructuring measures can be taken easily and quickly,” Citi analysts wrote in a note to clients.

But mining industry bankers said it would be virtually impossible for management to put together the required financing for any buyout.

“How, in a market where everyone thinks it has too much leverage, would you put leverage on it?” one senior banker said.

Instead, the company is expected to step up its divestment plans beyond those already announced earlier this month, one banking source said, adding that while other options like a company split or a buyout of the trading business were possible, they were unlikely.

Three Glencore executives are among the firm’s top ten shareholders, including Glasenberg with an 8.42 percent stake, according to Thomson Reuters data. Just two weeks ago, management took up 22 percent of the new shares being issued at 125 pence each. The stock has fallen more than a third since then.